A Colorado broker is working with a buyer who is purchasing a property in a mountain resort community that has a 2% local real estate transfer tax under a home-rule ordinance. The buyer's lender requires that all transfer taxes be disclosed on the Loan Estimate and Closing Disclosure under TRID. The buyer asks the broker whether the local transfer tax will affect her ability to get a conforming loan. Which response best reflects the intersection of Colorado local transfer tax law and federal mortgage lending requirements?
Correct Answer
B) The local transfer tax must be disclosed on the Loan Estimate and Closing Disclosure and is factored into the buyer's cash-to-close calculation, but does not affect loan eligibility for conforming loans
Under TRID (RESPA/TILA Integrated Disclosure rules, 12 C.F.R. § 1026.37 and § 1026.38), all transfer taxes — including local municipal transfer taxes — must be disclosed on the Loan Estimate and Closing Disclosure as part of the buyer's cash-to-close calculation. However, the existence of a local transfer tax does not affect loan eligibility for conforming loans (those meeting Fannie Mae/Freddie Mac guidelines). Conforming loan eligibility is based on loan amount, LTV ratio, borrower creditworthiness, and property type — not on the local tax environment. The transfer tax is a closing cost item, not a loan qualification factor.
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Related Concepts
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
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